Reference no: EM133166977

Question -

a) Atlas Company has a preferred stock issue. The preferred shares have a par value of $75 and a dividend rate of 8%. What would you be willing to pay today for the preferred shares if you have a required return of 5%?

b) Atlas Company also has a common share issue. The common shares are selling for $52 and just paid a $2 dividend.

i) If you expect a 1.5% dividend growth rate, what rate of return would you earn if you purchased the common shares for the current market price?

ii) Atlas Company is considering a new investment which would result in growth of only 1% annually for the next two years after which time growth would increase to 3.2% forever. If the common shares are currently selling at $52 and the required return is 6% should Atlas Company proceed with the investment?